Tag Archives: layoffs

Call it what you want — the best of both worlds or making the best out of a bad situation — but many employees confronted with the choice of losing a valued job or agreeing to a reduction in hours or wages, choose the latter. As the conventional wisdom goes, the employees are just happy to be working.

Many employees taking unpaid, mandatory furloughs are tightening their belts and then spending their free time working around their homes and apartments, taking a much needed rest or spending one-on-one time with their families.

Employers are also looking at the bright side of furloughs and turning to them in lieu of layoffs. Furloughs can be structured in many different ways, but the basic furlough requires employees to take a mandatory, unpaid break from work for a specified amount of time. The benefits of work furloughs are many:

The company reduces labor costs.

The company saves utility and other operational costs (depending on the scheduling of the furlough).

The majority of a company’s employees, along with their skills and institutional knowledge, remain in place, thereby saving the company the substantial costs of recruiting, hiring and re-training new employees when the work picks back up.

The company remains agile because it can adjust the furloughs to meet changing market demands.

The company may preserve employee morale and company culture.

However, the risks are also many. Because of the complexity of the laws and the many business and legal considerations that come with furloughs, employers should consult closely with their counsel before implementing a furlough program. The following is a broad overview of some of the legal risks to be considered.

Wage and hour claims — Furlough programs must be designed by first considering whether an employee is exempt or non-exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq. Under the FLSA, these categories of employee must be treated differently with respect to furloughs.

Considerations for non-exempt (hourly) employees — There are fewer FLSA complications when implementing furloughs for employees who are paid based solely on the hours worked. If an employee is paid at an hourly rate for the hours she works, and she works fewer hours, her pay is automatically reduced. It doesn’t matter whether the hours are reduced across the board, for one day a week or for an entire week. So long as the applicable minimum wage and overtime provisions are followed, there are few complications to consider — at least in theory.

It is critical in this situation, though, that all managers be reminded that hourly workers must be paid for all time “suffered or permitted” to be worked, using the language of the FLSA. Sometimes furloughs are chosen because there is less work to be done. Other times, the workloads are not reduced, but the furlough is simply an effort to reduce labor costs. In those situations, managers may feel increased pressure to produce the same amount of work in less time. If employers are not careful, managers may ask subordinates to work “off the clock” — a classic FLSA violation that could lead to substantial damages and government scrutiny, not to mention employee morale and other cultural problems.

Another problem can occur when a great deal of overflow work is directed to the lowest-paid exempt workers to avoid overtime pay. Whether a position is exempted from the FLSA is determined on the basis of job duties, not on titles, so it is quite possible a low-level manager suddenly overburdened with leftover work and making the same (or less) money as before, might take a closer look at whether he is improperly classified as exempt and should actually be paid overtime. If his job duties have changed significantly because of the furloughs and he is now doing a higher percentage of manual labor and exercising less and less independent judgment and discretion, he may be right.

FLSA considerations for exempt employees — To maintain an exemption from federal minimum wage and overtime rules, exempt employees must be paid a minimum of $455 per week, along with other additional requirements in relation to their job duties. With certain exceptions, an employee’s salary cannot be reduced for the quantity or quality of his daily work. That typically means that if the employee works any part of the work day, for FLSA purposes he is entitled to his full week’s salary. This requirement presents a problem for furlough programs that are randomly scheduled for less than a week’s time or that allow exempt employees to work part of the week, such as a program that allows an employee to work Monday through Thursday, but asks her not to work on Friday and subsequently reduces her pay by 20 percent.

While it is not impossible to create a compliant furlough program that allows for scheduling flexibility, one of the safest courses of action from an FLSA perspective is to require exempt workers to take weeklong unpaid furloughs. Even with this course, though, there are dangers. Work done remotely still constitutes “work,” so exempt employees should be prohibited during their furlough week from drafting documents, participating in conference calls or from checking or responding to e-mails, Blackberry devices or voice messages. If an employee is so important that she must be on a conference call on Wednesday at 10 a.m. during her furlough week, then the safest course is to either reschedule her unpaid furlough or reconsider whether she should be on the furlough list in the first place.

Another option is to make a long-term prospective change to exempt employees’ salaries. For example, if an exempt employee was making $1,000 a week, her salary could be prospectively reduced on a going-forward basis to $800 a week. So long as the decrease does not make the weekly salary fall below the minimum of $455 per week, this option could be a viable alternative for some employers.

To maintain morale and prevent the risk of losing or alienating key employees, some employers have coupled long-term prospective salary decreases with a comparable increase in paid time off. So, for example, the employee now making 20 percent less in pay, may be given a 20 percent increase in paid time off to compensate. That paid time off might be required to be taken at certain times, or employees may be given flexibility in their scheduling.

This option, if properly executed, has the same effect as a furlough because employees are working less and receiving less income.

This scenario allows the exempt employee to work part of the week, and still receive his full pay for the entire workweek, albeit at a reduced rate. In contrast, in the earlier example, the employee worked part of the week but was not paid for the entire work week, which runs afoul of the FLSA.

Other legal concerns include:Workplace injuries — When work hours have decreased but workloads have not, employees might rush to complete projects and meet customer deadlines. This can lead to accidents and increased worker’s compensation, FMLA or even disability claims, especially in industries that rely on manual labor.
Express contract claims — Companies cannot afford to overlook the negotiated contracts they may have with some employees, especially key employees. If furlough requests alter the terms of those contracts, the employer could end up paying damages instead of saving labor costs. Naturally, if a company’s work force is unionized, the collective bargaining agreement must be followed.
Implied contract claims — Hopefully, all employers already know their employee handbooks may be considered enforceable contracts. Most handbooks that have been reviewed by legal counsel include disclaimers stating the handbook is not a contract and the policies can be unilaterally changed by the employer at any time, with or without notice. Regardless, before making a furlough decision, employers would be wise to review the sections of their current and past handbooks that deal specifically with any of the proposed changes — particularly changes in hours and compensation — to determine whether there is any problematic language.

Employers should also review employee offer letters, which sometimes include language that could be read to imply a contract for a guaranteed salary or schedule.Notice — Some states have laws requiring employers to notify employees before significantly reducing their hours or salary. Arizona is not among them, but employers with operations in multiple states should ensure they are in compliance with these notice provisions.

Though some recent economic indicators predict the recession has bottomed out, the need for corporate cost cutting is likely to continue for some time. It is easy to decide to scale down the company picnic, but implementing a furlough program is much more complicated. Companies must be sure to work closely with counsel to ensure their programs meet both their business needs and are compliant with the law. While employees might be doing their best to take job changes in stride, some employees may just decide to spend their furloughs researching their employment law rights.

Bracing for austere times ahead, office leaders have two obvious places to cut back: payroll and real estate. No one would suggest that cutting staff is an easy or enjoyable thing to do, but it can be an opportunity. Space freed by reductions in payroll can be reorganized to improve workplaces, bolster worker morale and raise productivity.

Even before the recent financial crisis took hold, Gensler’s research found that 36 percent of U.S. office space is considered by the workers using it to be ineffective. This is in large measure because the nature of work is changing. Formerly the domain of so-called creative industries, collaborative meetings and group work scenarios have assumed priority over individual focus time.

Reducing office space as a cost-cutting strategy can actually create inefficiencies if you simply shrink space and continue with the same workplace model. Gensler’s recent workplace survey found that firms that provide appropriate workplaces for the type of business conducted have higher levels of employee engagement, brand equity and profit, with profit growth up to 14 percentage points greater than those with less effective work environments.

If layoffs have left you with too much space for too few people, look into whether you can unload space through subletting or simply returning it to the landlord. There can be a real negative psychological impact among employees who always are aware that there’s an empty desk next to them. At the same time, a little more breathing room can boost spirits and productivity.

Before making any plans, take a look around the office and really understand how space is being used. Observe how people are working in the office, how areas are really utilized. What’s empty? What’s overcrowded? Where have people been doing workarounds to make space effective? Look for wear patterns, improvised equipment and furnishings, over-flowing desks, unused conference rooms, etc.

When you’re ready to take action, consider these possibilities:
Make sure you’re getting the most out of your space by converting as many spaces as possible from single-use spaces into multipurpose spaces. A reception area can double as a client area, employee café, community space and optional work area. This approach will require furniture that supports multiple uses.

Wireless capability makes your office one big workspace. Anyone can go to any corner of the workplace to huddle in groups or get away from everyone for some solitary focus time.

By strategically locating amenities, you can increase the opportunities for incidental, as well as intentional, collaboration among staff members.

Branding the workplace nurtures corporate culture and improves a sense of teamwork and pride in the work produced. Color, art, graphic images and printed messages used in strategic locations can be powerful.

Improve visual connectivity among colleagues to promote collaboration and social interaction. This can be achieved in several ways: employ an open office plan, install low-panel workstations and reduce the number of closed offices.

Create space by increasing density and clustering meeting rooms. Create collaborative social zones in the space outside of those areas. This energizes public areas while reducing space taken up by circulation paths.

Place workstations and open collaborative spaces along window areas, and put offices inboard to bring light deeper into the space. Natural light in workspaces raises productivity and reduces energy costs.

Accommodate telecommuting when appropriate. You can save on real estate, energy costs and demonstrate an interest in your employees’ work-life balance. With mobile workers, be sure you have space in the office that gives them easy access to the tools they require and the people they need to connect with.

Perhaps before going all in, make small changes and monitor the results. It is important to assess your workplace layout before making any changes and to evaluate the results after implementation. Observation and surveys are effective ways to validate what’s working. Once your workplace environment changes are complete and have been occupied for a few months, verify that your design is advancing workplace goals. Consider evaluating your space every two to three years to help keep your workplace effective.

Ask where you’ve captured real estate efficiencies. Have you been able to get double and even triple use out of some spaces? Is every part of your office space being deployed in the service of supporting work activities? Are your employees more connected, informed, collaborative and productive? Ultimately, your new design should deliver improved business performance.

Creating a more efficient, collaborative and accommodating workplace is something that pays dividends even in financially distressed times. A proud organization with employees who enjoy going to work and who feel the company cares about them will work harder and more effectively no matter the state of the economy.

It may be hard to believe, but in tumultuous economic times, executive education is somewhat recession proof — at least as far as employees are concerned. People who have lost their jobs have more time to go back to school, while those who are still employed may feel the need to enhance their skills.

University administrators and instructors see no less interest in educational opportunities as the economy spins downward. Even businesses that have downsized continue to pay a portion of tuition costs for those employees who remain. But at companies where training and development programs are among the first to be eliminated, experts suggest such moves are shortsighted.

Andy Atzert, assistant dean of the Arizona State University W. P. Carey School of Business and director of the school’s Business Center for Executive and Professional Development, does see a diminished demand from companies for customized executive education programs.

“The reason is that they are very visible expenses, a big line item that a company can slash when desperate,” Atzert says. “They’re shifting back to open enrollment. They’re not necessarily cutting back on education funding for individuals. The money is distributed through departments and it’s a less visible expenditure.”

Employers benefit from executive education programs in today’s economy because the skills of employees who remain expand. For example, an engineer who is promoted to fill a vacancy might need to acquire knowledge about marketing.

Strange as it may seem after layoffs, another benefit is employee retention.

“When a company lays off people, it worries about the effect on people who remain,” Atzert says.“You’ve pared down, and you don’t want to lose more employees. That’s one of the reasons for not cutting the education budget.”

Atzert describes education, and that includes executive education programs, as being “a counter-cyclical business.”

“What commonly happens in an economic downturn is that when there is not full employment and not a lot of jobs out there, people seek opportunities to retrain,” he says. “People who are employed polish up their resume a bit, just in case. Insecurity causes a person to make oneself more competitive.”

Mike Seiden, outgoing president of Western International University, agrees that historically, education is recession proof.

“We don’t see any abatement coming to us for degree programs,” Seiden says. “When people are losing their jobs, they recognize that a degree is important, and when times are good, companies support their employees by providing educational opportunities. I don’t see any change in that, but I say that with a little bit of caution. This economic climate is a lot different from anything we have experienced in the last 40 to 60 years.”

While Arizona’s three state universities are facing budget cuts, and some smaller niche colleges are encountering economy-related problems, Western International, a forprofi t private institution that is part of the Apollo Group Inc., is not feeling a negative impact, Seiden says. Employer subsidies seem to be holding steady.

“But if unemployment increases substantially,” Seiden says, “and companies become more hard-pressed, who knows what will happen?”

Both ASU and Western International University have executive education partnerships with the Salt River Project. At ASU, the Small Business Leadership Academy provides CEOs of small and diverse businesses with a 10-week program designed to help take their businesses to the next level.

The first class, which consisted of 11 SRP suppliers and five SRP business customers, completed the program last November. A second group will start taking classes next August. Offered one evening a week at the ASU School of Business Tempe campus, the classes focused on such topics as business strategy, negotiations regarding terms of contracts, employee retention and corporate procurement.

“They learn what we look for as a procurement organization, so when they get my requests for proposals they know what to be prepared for,” says Art Oros, SRP manager of procurement services. “They have already shown tangible savings. The improvements helped them to maintain the edge they need in these times.”

The companies that participated are small businesses, many of which are minority owned.

“We had good diversity — all ethnicities and cultures,” Oros says.

At Western International, SRP helps to subsidize its own employees’ education as they pursue degrees.

“A company’s ability to help provide an education for its employees is paramount in today’s world,” Seiden says. “It not only helps ensure that the company will retain its employees, but it will improve productivity.”

Paul Palley, who teaches economics and statistics at the University of Phoenix, says his classes naturally turn to discussions of current events.

“The subject of bailouts is something that is brought up a lot,” says Palley, a city of Phoenix economist. “Students don’t really understand what’s going on. Bailout is not the best word. In many cases, it represents an investment — government purchasing equity. Sometimes students feel not enough is being done, and sometimes they feel too much is being done. It changes from student to student and from day to day.”

Kevin Gazzara, who recently retired from Intel, where he was program manager of management and leadership, is senior partner of Magna Leadership Solutions and University Research Chair for Organizational Behavior at the University of Phoenix. He has developed a statistical tool that enables employers to link training and development programs with business results.

“One of the first things to go in difficult economic times is training and development,” Gazzara says. “From our perspective, it should be one of the last things to go. Many organizations utilize training, but don’t know if they are getting a return on their investment. In tough economic times, I tell organizations to restrain from the urge to cut training to save some relatively small dollars.

“As managers are being asked to do more with fewer resources,” Gazzara adds, “raising their levels of skills so organizations can compete becomes essential, and the only way to do that is having the right training.”